patrick.net

HARM,

Where did you find the "puke in your own mouth link"? Funny stuff especially the comments! Over at "Ben's Blog" (which sounds suspiciously like a tavern your wife rather you not frequent) there was a link to the "San Diego Creative Investor" website that was freakin' hysterical. One of the gals ventured over to offer her opinion on:

"I bought ANOTHER flipper home in Phoenix (at the height of the market) and have had difficulty getting it sold. Now I'm just looking to break even but with the realtors cost and the monthly payments it looks like I'm screwed wether I sell it OR rent it out".

Needless to say she was less than generous with this FB!

Who here has done scenario analysis on alternative outcomes which the Fed could have engineered? What would have happened without post 911 liquidity? I’d love to hear the armchair Fed governers here teach a lesson in global macroeconomics.

Can't say that I have, though I would put little credence in the results from anyone's "scenario analysis". Isn't economics the art of predicting the past? No macroeconomic model --no matter how sophisticated-- is capable of predicting future outcomes with perfect reliability. And most are built with the inherent bias of the person(s) constructing the model.

One thing we can do, however, is study the consequences of past mistakes (unintended ot not) and adjust our current policies appropriately.

You know, it is quite possible that the housing bubble is an unintended consequence, albeit a pretty bad one, but still preferable to the alternatives.

Such as what? A somewhat deeeper recession followed by sustainable growth and no housing bubble? Sounds pretty good to me.

In reality, a recession is bad only if it affects you. During the 2000 SV recession, many of us actually enjoyed improved traffic flow, abundance of restaurant tables, and low rent.

Don't forget decent returns on cash. Randy, we're JBRs. If we owned houses from '00-'06, we'd be singing the praises of Greenspan as he blew up the prices of the assets we owned and inflated and cheapened our liabilities.

Instead, our wages have shrunk substantially wrt house prices, our cash assets have been pilfered while every house-betting man in the BA has been handed a check for $300K.

My push for a slow moving Fed is to make the Fed's motions become predictable for the average Joe so he can plan accordingly and avoid getting stolen from. If recessions result from a lethargic Fed, so be it.

HARM,

Myself and others have been most vocal regarding "dis-enrollment" for 401K participants! Meaning you're new on board, we automatically enroll you into the plan and if you really, really want out you have to jump through hoops. Maybe even have their spouse sign acknowledging that they are "O.K" with living in a single wide at retirement? I think busting this bubble will provide the first step and sufficient motivation.

Such as what? A somewhat deeeper recession followed by sustainable growth and no housing bubble? Sounds pretty good to me.

Unfortunately it doesn't work that way. Global economics contains myriad feedback loops and threshold "tipping points". Given the imbalances that existed before the shock occurred, a global deflationary cycle was a very real possibility. The reversal of Japan's recovery caused by a drop in US consumption alone could have started the ball rolling, not to mention the fragile nature of Europe's anemic recovery at that point.

Keep in mind that most of the folks writing books and essays about killing the Fed are hedge fund managers, former or current. A requirement of being a hedge fund manager is truly believing you are smarter than the Fed Governor, and everyone else on the planet for that matter. There's plenty of room for criticizing the Fed, as in DinOR's accusations of politicization. But all this "those bastards are useless" is, in my opinion, useless rhetoric.

Randy H,

I'm going to have to differ with you slightly on this one. Had the HB been "unintended" they would have pulled the punch bowl much more quickly. I don't consider having your choice of 89 different varieties of hardwood flooring of any real benefit.

A requirement of being a hedge fund manager is truly believing you are smarter than the Fed Governor, and everyone else on the planet for that matter.

You only need to think that you are luckier than most.

FRIFY,

I think you attributed a quote not mine to me. That was Peter P I think.

I'm a renter too with the task of protecting substantial equity savings from inflation. I still do not see the Fed as my "enemy". I see global imbalances, massive deficit spending, irresponsible tax policy, and time as my enemies.

Randy H,

If all those hedge fund managers are SO smart why do they keep calling me for ideas? Me?

RH,

I was agreeing with Peter P who responded to your quote. I'm just joining the pile on top of Randy crowd. ;-)

I certainly agree that our Tax policies are a bigger threat to my long term economic health than the Fed meddling.

"predictable for the average Joe so he can plan accordingly and avoid getting stolen from."

Hopefully this would not include Uncle Al suggesting ARMs for mass-consumption in a rising-rate environment AND when rates are already at historical lows.

Red Whine,

Yo! Even the financial media struggled with the logic of that one! Those comments should have served as a warning to GTFO! Yo!

Just for a laugh check out www.sdcia.com. Man, talk about "equity locusts"! Got to the message boards and check out "Losing Shirt in Tucson". Freaking hysterical!

Harm wrote at the top, regarding FED priorities -

–Implement monetary policy by open market operations, setting the discount rate, and setting the reserve ratio
Yes, they’ve done a “mah-velous” job of flooding capital markets with unlimited liquidity, blowing asset bubbles and destroying the value of the USD –kudos to them!

Actually HARM, don't you think out of control federal, personal and corporate debt might be more responsible for the freefall of the US Dollar than anything else.

Don't forget, the Fed incluences world economics, but the exchange rate of the dollar is a complicated thing, influenced by the world.

If you are talking about the intrinsic worth of a US Dollar, what it will buy, as opposed to its exchange rate, I still don't think the Fed can take much of the blame.

If not for the carousel of financial instruments for cash for crap from China, bombs and bail outs, would not the whole position of the US economy be completely reversed? And the Treasury Dept sets the rates that matter in this arena. And they were influenced by rates in Japan as much as by the Fed, I'm sure.

You can't blame the ceaseless trade deficit entirely on the fed. And the deficit, and debt financing of America by Asia, are factors not under the sway of the Fed. Just my opinion.

I didn't know sdcia.com existed until I visited this board. Can these people possibly be for real? Someone here coined a phrase "irrational lust for depreciating assets" or similar -- perfect.

tsusiat,

Yeah I can kind of go along with that but; when in the last 5 years + was the "cost of money" a deal killer? I mean seriously, as individuals or corporations? If you can think of examples where an aquisition or expansion plans were shelved b/c the board decided not to move forward b/c int. rates would mean the investment would have to make sense I'm open. Be it an SUV or a whatever?

What I should have said is that a lot of things may have "died on the vine" for various reasons but it wasn't b/c of the cost of money. Especially so soon after pets.com! Fast, loose and easy money for everyone with a ONE page business plan!

Randy H:

Good input. Thanks!

DinOR,

If all those hedge fund managers are SO smart why do they keep calling me for ideas? Me?

I surely didn't mean to imply that they really are as smart as they think they are. Since installing site monitoring on my cap2.0 blog I have discovered 6 or 7 hedge funds that are regularly downloading my "research".

After I finished laughing I got the bright idea to create a contra-hedge-hedge-fund. Seed these "geniuses" with my own research then take bets against what I've told them to be true.

Since installing site monitoring on my cap2.0 blog I have discovered 6 or 7 hedge funds that are regularly downloading my “research”.

Randy, rename the site to "Center for Capitalism Research" and you will get even more hits. :)

Randy H,

LOL! Lord, that is too much. Well, these guys are relentless if nothing else. As if we were in need of more folly check out www.sdcia.com. In the boards there's this guy losing his shirt in Tucson. These guys are almost in pure "damage control" mode and if you needed evidence of "equity locusts" look no further!

>>If all those hedge fund managers are SO smart why do they keep calling me for ideas? Me?

Dinor,

I'm getting into that racket and I wouldn't mind talking to you. I always want to hear what everyone is thinking.

Michael Anderson,

I think SQT or Randy H can get you my e-mail, so no problem. Can't speak for Bend but I think we reached 106 degrees on Monday (much cooler now).

–Maintain a strong payments system
No argument here –creditors/lenders of all kinds have enjoyed limitless cash-flow under the Fed. Debtors on the other hand…

That's not what I think they meant (although I agree with the connotation). The payments system is the Automated Clearinghouse System (ACH origination and inter-bank check clearing). That, actually, is one of the reasons that you don't have to take your check to another bank for cashing and deposit into your bank. This is also the basis for much of the online banking in the US since ACH originations go over the US clearinghouse overseen by the Federal Reserve Bank.

$200k in credit card debt

Huh? Did you mean 20K?

Thanks SQT.

No Peter, it really is $200k.

200K? 8O

Bottom line is they owe $600k against the house and have $200k in credit card debt.

OMFG :shock:

It was appraised in 2001 for $1million, but since the property needs some repairs

There may be a silver lining here. If it was appraised at that much way back in 2001 (the very earliest phase of the HB), then it must be valued at WAY more than that now. Appreciation for the Sacramento area since 2001 is something like 150-200% on average, right? Even assuming the place needs a ton of big repairs (new roof, plumbing, electrical), I can't imagine that would amount to more than $100-200K in buyer credits. This, plus the $600K mortgage(s) plus $200K CC should still leave them with a couple of million dollars free & clear (assuming they sell fast).

But it might not be enough to cover the debt and put money down on a new place.

Commision to sell + closing costs for the new place may amount to more than 70K - 80K.

Can they try to sub-divide and sell part of the land away? 1/2 acre of prime raw land should worth something.

That full-acre lot is where most of the "house" value is, not the structure itself. You may be (pleasantly) surprised at what it appraises for today, especially if local zoning allows it to be sub-divided into multiple SFH lots.

Even if it's not worth $3 million, you must impress upon them that the high-interest CC debt alone will eat them alive if they don't act quickly. And the longer they wait in a falling market, the worse their prospects will be (as in BK).

Funny, Peter P & I said almost the exact same thing.

I do not know if sub-dividing triggers a Prop 13 reset though.

>>The land isn’t divided up in a way that would make that possible.

Well, how much would the land be worth if the house was knocked down?

SQT,

Oh, thank you for the e-mail exchange! Just another plus for Patrick regulars.

I am curious though as to why folks in that age group never seem to be able to confide in their children (or anyone for that matter) until it's too late or certainly in the 11th hour?

I've always been SO candid with my daughters about money matters. During the 90's (when they took karate lessons and everything under the sun) Mrs. DinOR and I took care to explain that things may not always be like this. We further explained that neither of their parents are anticipating any kind of an inheritance so we're pretty much it. (There really isn't a DinOR family fortune). When it came time for college the expectations (particularly after a long and difficult bear market) were pretty realistic.

It certainly didn't seem to suprise you all that much but I can't help but feel that there was much consolation in being that right either. I'm sure they'll be fine but it looks like their "expectations" will have to come around as well?

DinOR says:
Myself and others have been most vocal regarding “dis-enrollment” for 401K participants! Meaning you’re new on board, we automatically enroll you into the plan and if you really, really want out you have to jump through hoops.

it's compulsory for nearly all workers here - including a mandatory employer's contribution of 8% of earnings. plus a voluntary employee's contribution. all with tax advantages, of course.

Are we having fun yet?

Here's my situation. Moved to a rental in June. Sold my house in October. Investor owner of the house we're in let us know they were selling (I don't blame them--smart). Finding another rental was horrible--three kids, big dog, cat. Tons of houses for sale, hardly anything for rent.

Finally found something. Now trying to move my stuff with little kids on summer break. Have to pick up a few appliances. Have to change mail, bank accounts, brokerage accounts, garbage, cable, phone, electric water, etc.

Good lord.

Moving into a nice 4-bedroom place. I talked with the neighbor there. I asked about the owner of the place I'm going into. He says they are waiting for the top of the market to sell. I only hope they wait until the one-year lease is over before they decide to sell. If they break the lease, sure, I get to pocket a little money, but then it's back to trying to find another rental in the same school district again.

"Why don't you just buy?" everyone asks.

SQT,

Kick-ass mom.

DS,

Good on ya mate! Perhaps there is a thing or two we can learn from the Aussies! It's so crazy it just might work! With our Pension Benefit Gaurantee Corp. about 28 bil. under funded (steel and airline bailouts) maybe they can assert pressure in the right places? That or keep the canned "roo" meat coming.

SQT,

Well that is an alarming situation. Can keeping up appearances be THAT important to Dad? I've got to be honest, after surviving a 3 yr. bear market I'm a little beyond caring about what other people think.